Goldman, Morgan Stanley Set $557 Million Fed Mortgage Accord

Jan. 16 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan
Stanley agreed to offer a $557 million package of cash and other
assistance for mortgage borrowers to settle a federal probe into
allegations that the banks improperly seized homes.

The sum includes $232 million in direct payments to more
than 220,000 borrowers and $325 million in assistance such as
loan modifications, the Federal Reserve said in a statement.
Eric Kollig, a Fed spokesman, declined to say how much each of
the New York-based firms will pay.

The deal adds to the $8.5 billion settlement announced last
week among the Fed, the Office of the Comptroller of the
Currency and 10 of the biggest U.S. lenders, including JPMorgan
Chase & Co., Bank of America Corp. and Citigroup Inc. Regulators
probed allegations that lenders rushed home foreclosures by
using flawed documents.

“With the addition of Goldman Sachs and Morgan Stanley,
more than 4 million borrowers will receive a total of $3.5
billion in cash compensation while an additional $5.5 billion
will be provided by the servicers for mortgage assistance,” the
Fed said in the statement.

Morgan Stanley’s share of the accord totals $227 million,
consisting of $97 million in cash and $130 million in other
relief, according to two people briefed on the matter. Goldman
Sachs will pay $135 million in cash plus $195 million in relief,
said the people, who asked for anonymity because terms weren’t
publicly announced.

Helping Borrowers

Cash payments in today’s deal range as high as $125,000 and
cover borrowers whose homes were in foreclosure in 2009 and
2010, the Fed said. The loans were handled by Litton Loan
Servicing LP, which formerly was owned by Goldman Sachs, and
Saxon Mortgage Services Inc., which was a unit of Morgan
Stanley, according to the Fed.

Michael DuVally, a spokesman for Goldman Sachs, and Mark
Lake of Morgan Stanley both said their firms were pleased to
have resolved the probe. Lake declined to say whether the accord
will result in a charge against fourth-quarter earnings, which
are scheduled to be released Jan. 18.

Goldman Sachs set aside $260 million in the fourth quarter
to cover litigation and regulatory proceedings including today’s
settlement, according to a statement today released with the
firm’s earnings.

Longer List

Goldman Sachs bought Litton in 2007 to get into mortgage
servicing, and Morgan Stanley bought Saxon in 2006, before a
housing market collapse that led to the worst financial crisis
since the Great Depression. Litton started 135,586 foreclosures
in 2009 and 2010, and Saxon initiated at least 60,313 actions in
the same period, according to the Fed. Both banks later sold the
servicers to Ocwen Financial Corp.

The settlement with Goldman Sachs and Morgan Stanley
expands the industry payouts beyond the initial 14 firms that
agreed in 2011 to hire outside consultants to review their
foreclosures for errors.

HSBC Holdings Inc. and Ally Financial Inc. are also
preparing to sign on to the deal, two people briefed on the
matter have said. Neil Brazil, a U.S. spokesman for HSBC, said
the bank is still in discussions with regulators. Its mortgage-servicing operations were regulated by both the Fed and OCC.

Ally, with all its mortgage-servicing affiliates,
represented the fifth-largest U.S. servicer with 2.5 million
loans during the crisis, according to the Fed.

Residential Capital LLC, the unit of Detroit-based Ally
involved in the settlement, supports the idea that bank funds
“should go toward consumers rather than consultants,” and has
been delayed in considering the settlement because of its
bankruptcy, said Susan Fitzpatrick, a bank spokeswoman.